s Microsoft’s Director for EMEA (Europe, Middle East and Africa) Anti-Piracy and Digital Crime, Juan Hardoy manages a team of former law enforcement officials and intelligence analysts and oversees the company’s efforts against organisations engaged in piracy and other illegal activity. 

A lawyer by training, Mr. Hardoy believes that India will soon have lower rates of piracy and counterfeiting, as and when it strengthens its intellectual property regime. In a conversation with The Hindu , during a conference in Istanbul, he talks about India’s grey markets, intellectual property protection and more.

Excerpts:

How aware are Indian businesses of the problems of piracy? It is no secret that most small and medium firms use pirated software.

Well if you look at the high piracy of India, there isn’t much awareness. And, this we see across sectors. Awareness is a dynamic thing as well, as the nature of piracy and counterfeiting changes all the time.

I believe that internal control systems and software management are important issues in this regard. The lack of these systems is the problem. Look at it this way. Usually, every company knows how many company cars they have. They know every detail about it, right down to the serial number of the engine and when the insurance of each car is going to end. But when it comes to software, we don't see this type of management. They don't know how many computers the company has or what software they are running.

The next thing is that companies are not aware of the security risks of pirated software. Around 70 per cent of the time, some pirated software has viruses and malware, which lead to criminals getting in. And, once the criminals get into the system, it causes immense damage and costs as the company must recover its data and so on. There are a lot of businesses in India that have sensitive information that can be quite easily accessed. They can lose their competitive advantage if they expose themselves through pirated software. The GM and the CEO or whoever doesn’t appreciate the value of the software. Software isn’t an asset for companies yet, but it needs to be so. So, if they need to cut down expenses, pirated software looks very attractive as it is so much cheaper. But being enticed by a low price tag makes them forget that the “saving” that they are making, is actually erased due to the security risks the company takes on.

There is a school of thought that piracy and counterfeiting help India by being a source of employment in the form of grey markets or by letting people skill themselves through pirated software. Do you think the harmful effects of piracy still outweigh the good in developing nations?

Microsoft’s official position and my position is that nobody wins with piracy. Let me explain why. If the global piracy rate is 10 per cent, the global economy will get many benefits in the form of increased jobs and increased tax revenue.

While no doubt there is great talent in India, but with such a high piracy rate, they don’t stand a chance. If companies were able to get into India and hire more, which they are wary of doing because of piracy and its associated problems, then those kids selling pirated DVDs could have been hired and eventually founded their own companies! So, there is no innovation when you have a system that doesn’t pay taxes or doesn’t respect intellectual property (IP). And, innovation is necessary for growth and development. Therefore, if you really want to change the lives of those who make a living around piracy or skill themselves through piracy, you must first respect intellectual property.

In India, the economy will improve if it has a strong IP protection system. For every dollar Microsoft makes in an economy, the Microsoft ecosystem makes an additional nine dollars. The ecosystem is the general economy, the vendors, suppliers, IT services sector and so on. This can be used to benefit people whose livelihood and skills come from piracy and counterfeiting.

Countries that best protect IP are the ones that profit the most from innovation.

The last thing that you forget is the people who work in grey markets, they are exposing themselves to a life of crime. With their employment comes the risk of being jailed, working with a crime ring, and these are things which ruin their lives forever. So the good effects of piracy do not outweigh the bad when you take a long-term view.

What about India’s IP regime – does it frustrate Microsoft and other multi-national companies that want to enter the market?

Well, first I think awareness is the main thing. When we enter the market, the first thing we assess is the education. How much does the Government know, and how much do the people know. The next is the level of rule of law and identify ways to increase that by establishing partnerships. We also look at how well aligned a country’s law is to international conventions. And while most developed nations tend to past muster when it comes to alignment to international agreements, the true problem is the level of enforcement.

But if you want a real frustration, while this is not specific to only India, the problem we see is the complete lack of scaling up when it comes to Government co-operation. We can help conduct raids, we can teach them, but we can’t force developing nations to think about a concept like IP protection. Very often, a Government will understand what we say about IP, but they don’t necessarily help us scale in a way that frankly only the Government can do. IP laws can definitely be improved, and what we need more is application of the law. And what we have to be careful about in more corrupt regimes is that the money we use in cracking down on counterfeiting and piracy sometimes cannot be accounted for as there are no invoices that will be given to us!

How do you think India’s IP regime and piracy problems compare to countries such as China or Brazil?

Well, piracy in China is most problematic. China’s illegal software market is $9 billion a year, and the legal market is $3 billion.

So this is definitely more problematic in China compared to India, and reflects in the differences in IP regime. But we should not be carried away by the high rates of piracy; you have to look at losses as well. The United States has huge losses even though they have the lowest rate of piracy in the world. Its losses are higher than China. The problem is, therefore, everywhere.

I am optimistic that India will soon join the U.S in having a low rate of piracy, and believe there is a lot of scope for India to improve as it alters its intellectual property regime.

In terms of the Government helping us scale up, both China and India have taken great steps. But there is a lot more to do and a lot more to improve.

Brazil, for instance, has formed an inter-ministerial department that sits together with industry associations and polices piracy. This has helped Brazil immensely, helping them bring down the levels of piracy and counterfeiting. These are steps that India has to take seriously.

How does Microsoft make sure that, in the attempt to crack down on piracy and push through legislation, it doesn’t harm India’s fledgling e-commerce sector by making issues like payment gateways difficult?

Online payment processors really need to understand how criminals use their services. Which is why we give payment processors proper training, so things like harming the e-commerce sector doesn’t take place.

While in our line of work we have to take down millions of links, we believe there is room for countries to have better laws so legitimate businesses can continue to flourish. We take a lot of caution and make sure that e-commerce websites are fully aware of what is going on. We give them a notice, give them time, and specify to them what exactly the problem is and how it can be taken care of.

Let me stress, however, it is a win-win situation if everybody cooperates.

Piracy and counterfeiting can also be described as problems of scarcity. When companies such as Apple and Nintendo aren’t even present directly in India, is it a surprise that ‘grey’ iPhones are very popular?

This is true. Especially in parts of Africa and India, authorised distribution is very important. In parts of Africa, you cannot even find the original product, even if the consumer wanted to purchase it! It becomes a chicken-and-egg situation, companies do not want to enter if piracy is high, but if they do not set up an authorised reseller then piracy will continue to be high!

This is why we stress that the rule of law and enforcement need to be high. When businesses need to crack down on counterfeiting, it cannot be done through Courts that take seven or eight month’s time. Where is the judgment then? Authorised distributers need to see that they stand a proper chance in the marketplace. This is why we at Microsoft try to provide them with a level playing field.

The conditions need to be developed such that legitimate businesses can flourish and not be hampered down by counterfeiting. For this, the playing field must be level, with the Government helping.

(The correspondent was in Istanbul at the invitation of Microsoft)

anuj.s@thehindu.co.in